You’ve made the right choice to take out protection - it’s important to ensure that if your income was removed from the household, you are able to limit the level of financial stress on your family.
It is especially important when you look at some of the statistics from last year, with £5.3 billion in protection claims being paid by the insurance industry. This included over 35,000 families being supported following an unexpected bereavement and over 16,000 Critical Illness claims, with cancer continuing to be the highest cause of critical illness.
So, here are a few things to consider when thinking about how much you want to leave for your family.
- Where do you live – rented accommodation vs mortgage
- What debts do you have
- The level of financial support needed for your partner/spouse
- Whether you have any children
- Do you want to cover your funeral
1. Where do you live
Whether you rent or have a mortgage, one of the important things is to ensure that your family can keep a roof over their heads. There will be enough on their plates when you are gone, without the additional stress having to move will cause.
If you have a mortgage, what type of mortgage is it, how much is left to pay and for how much longer do you have to pay it?
The average mortgage debt in the UK has been calculated at £132,633. But if you’ve recently bought your house, then it’s likely to be more, especially as the average house price reached £228,903 (April 2019).
You’d need to determine whether you’d want to pay this off in one lump sum or on a monthly basis. If the latter, you may need to consider any re-mortgaging costs.
The average rent in the UK is £941 per calendar month, up nearly 2% year on year. Of course this varies by location in the UK – in London averages are at £1,611 with the rest of the UK (ex-London) at £781.
2. What debts do you have
Take stock of what other debts you have, which could be a car loan or even an outstanding balance on a credit card. According to the TUC, the average UK household unsecured debt now stands at £15,400, covering credit cards, banks and other lenders. This amount has increased over the years, which is said to be a result of public spending cuts and wage stagnation. Whilst it’s important to pay off your debts you cannot be sure that you will ‘go’ debt free.
3. Support a spouse/partner
Many insurance companies assume that if you have a partner, they will require four times your annual income to support them. This of course can be changed to the amount you require, if any. Make sure you are aware of any company benefits that you may have and also the level of sickness cover – so that you are not paying for a benefit that you already have.
According to the Child Poverty Action Group 2018 report, the additional full cost that a child adds, over 18 years to a household, has been calculated at over £144,000 for a couple and over £199,000 for a lone parent. As a couple, the average additional cost per year is £8,021 for the first child, £8,728 for the second child and £9,480 for the third child. These amounts increase to £11,070, £9,300 and £8,657 respectively in the case of a lone parent.
When it comes to higher education, you need to know / be aware of the yearly tuition fees, which are currently £9,250 for an undergraduate degree. You can alter this amount to include living costs or deduct tuition fees if you live in Scotland, Wales or Northern Ireland and your child goes / is likely to go to a local university. And, if you hope to pay for their full university costs, you will need to consider their living expenses, costs of books and social expenditure.
5. Funeral Costs
Not a nice thing to consider, but with the average cost of a basic funeral in the UK sitting at over £4,000 in 2018 then it’s something that you may wish to add to your life insurance cover. It’s even more when you consider that the average amount spent on the send-off is over £2,000 and that the average amount spent on professional fees is over £2,800. So the total cost of dying could be over £9,000.
Now you’ve had a chance to think about the level of cover you are looking for you can begin. Most companies will want to know a few personal details up front, such as your age, health and whether you have smoked. And remember, make sure you don’t double up on cover!
How can Foresters Financial help?
Our Financial Advisers will be able to visit you in the comfort of your own home at your convenience. They will be able to help you determine the level of cover you require to suit your needs and will be on hand as your financial circumstances in life change.